Bankruptcy Trustee Diana G. Adams moved to dismiss the bankruptcy cases of several debtors after they failed to meet the credit counseling requirement as defined in the bankruptcy code. But Bankruptcy Judge Charles Brieant refused to accept the dismissals and instead moved to “strike” the bankruptcy petitions which would allow the debtors to still have the protection of bankruptcy’s automatic stay and give them time to fulfill the credit counseling requirement. When the matter was brought before the 2nd U.S. Circuit Court of Appeals, the court said:
“Although an individual may be ineligible to be a debtor under the Bankruptcy Code for failure to satisfy the strictures of §109(h), the language of §301 does not bar the debtor from commencing a case by filing a petition; it only bars the case from being maintained as a proper voluntary case under the chapter specified in the petition,” Livingston said.
The panel concluded the restrictions in §109(h) and §301 “are not jurisdictional, but rather elements that must be established to sustain a voluntary bankruptcy proceeding.”
The court went on to find that the automatic stay takes effect even where a petition is filed by a debtor without satisfying §109(h).
The court’s ruling could give bankruptcy judges more discretion when deciding whether or not a debtor’s bankruptcy case should be dismissed because they failed to take their credit counseling course before filing. In effect, bankruptcy judges can say, we’re not going to dismiss your case; however, we will place your bankruptcy case on hold until you meet the credit counseling requirements. This would give debtors the opportunity to correct their error and remain under the protection of the automatic stay.